Medina sets model for airport schemes

20 December 2011

The ease with which the Medina airport project has attracted finance, is a positive sign for the future of public-private airport deals within the Middle East

Key fact

The Medina airport scheme will more than double the airport’s capacity to 8 million passengers a year

Source: IFC

Prince Mohammad Bin Abdulaziz International airport in Medina is one of the kingdom’s most important terminals. Its proximity to the Prophet’s Mosque has led to an increasing number of Muslims using the airport during the pilgrimages of Umrah and Hajj. Expansion of the existing facilities, which opened in 1972, is therefore a priority for Saudi Arabia’s General Authority for Civil Aviation (Gaca).  

It is expected that further airport projects in the region will now be executed under the public-private model        

Advised by the World Bank’s International Financial Corporation (IFC), Gaca has decided to undertake the project under a full 25-year public-private partnership (PPP). Although PPPs have been used in the kingdom before, the Medina scheme represents the first airport PPP for the GCC aviation sector. In October, the Tibah Consortium, led by Turkey’s TAV Airports Holding with the local Saudi Oger and Al-Rahji Holding Group, were chosen to develop the project.

PPP advantage

“This is a continuation of Gaca’s efforts to introduce private-sector participation in its activities,” said Gaca President Faisal al-Sugair, announcing the winning bidder.

“This will considerably improve our ability to welcome a greater number of passengers, while providing a higher level of service for many years to come. We are delighted with the result and look forward to partnering with the TAV consortium.”

The partners will take over the airport on 1 May 2012 and begin an extensive expansion project, which, according to the IFC, will see the airport more than double its capacity from 3.3 million passengers a year in 2010 to 8 million a year over the next three years. 

“Under the contract, we basically have 180 days to the effective date, which includes financial close, taking over operations and starting construction,” says Burcu Geris, head of project and structured finance at TAV Airports Holding. “This is six months, which is standard.”

The Tibah Consortium approached the bid with committed finance of $1bn and the three partners will be investing a further $400m in total equity. Much of the financing for the project, arranged from a pool of five lenders, will be raised in Saudi riyals. The loans will be secured with revenues received at the airport, although there is also a dollar tranche.

Geris says that despite this being the region’s first full airport PPP, lenders have been positive about the project. “The build-transfer-operate [BTO] agreement is a very bankable agreement and the lenders and advisers agree,” she says. “The structure started on a good step. Plus the IFC being an adviser to Gaca has also helped and there have not been any question marks or uncertainty. There is a direct agreement to be signed between the lenders and Gaca, which will provide additional comfort to the lenders.”

Medina airport construction progress

The next step is to reach financial close, which was expected in six to nine months after the October contract signing. Work is progressing on the designs for phase one construction, which includes building a new terminal and ancillary buildings, the extension of the runway, installing 20 remote stands, and upgrading the lighting and fuelling systems. The project has to meet international green building standards as specified by the US Leadership in Energy and Environmental Design (LEED) criteria.

Medina airport project timeline
March 2010Companies invited to prequalify
June 2010General Authority for Civil Aviation prequalifies eight consortiums
August 2010Prequalified groups invited to bid
June 2011Bid deadline 
October 2011Contract awarded to Tibah
May 2012Tibah takes over airport
2015Phase 1 expansion takes capacity up to 8 million passengers a year
2034Phase 2 expansion takes capacity up to 16 million passengers a year
Sources: General Authority of Civil Aviation; MEED; TAV; IFC

“There are lots of processes going on in parallel,” says Geris. “One is the financing process. We had committed offers, but they also need further due diligence, final credit approval, drafting of the documents, direct agreements and so on. On the operation and construction side, there is the transfer process from the existing operations to new ones. For the expansion, the planned construction period is three years and the engineering, procurement and construction contract (EPC) is being drafted.”

The EPC contractor will be a joint venture formed of the sister companies of the PPP organisations. This includes TAV Construction, Al-Arab Construction and Saudi Oger. Plans for further expansion are also under development. According to the IFC, the second phase would take total capacity to 16 million passengers by 2034 and increase the project’s cost to $2.4bn.

When the project was first tendered in early 2010, eight groups prequalified for the scheme.  Four groups then submitted bids in on the June 2011 deadline. The Tibah Consortium was made preferred bidder in August 2011 and the contract was signed on 29 October 2011.

Strong backers

Geris says that several key factors influenced the successful bid. “It was important that we have a good financial adviser, Japan’s Sumitomo Mitsui Banking Corporation, who was influential in structuring and securing the finance. It was equally important to have strong partners who complemented each other,” she says. “There are two local partners and an operator partner, so the three groups complete each other. There is also the know-how and experience of TAV Airports in building, operating and financing airports, coupled with local presence.”

Along with the financial adviser, the UK’s Mott Macdonald acted as technical adviser, Norton Rose was legal adviser and Atkins was the designer.

Geris says that although the airport PPP is a new model for the kingdom, many of TAV’s airport operation projects are already carried out under this type of agreement, either through build-operate-transfer, BTO or lease arrangements. The company already runs airports in Turkey, Macedonia, Tunisia and Georgia. It is expected that further airport projects in the region will now be executed under this model and the outcome of the Saudi project is being closely followed by other GCC states.

Passenger growth at Medina airport

With passenger numbers having increased by an average of 21 per cent a year over the past five years, Medina International airport can look forward to continued growth. This has created a solid platform for the creation of a strong PPP and the ease at which the scheme has attracted finance bodes well for the future of private investment in the region’s airports.

Medina airport bidders

  • Local El-Seif Engineering Contracting Company; US-based ADC & HAS Airports; UAE-based Emirates Financial Services/UAE-based Emirates NBD Capital; local Abdulaziz Alsaghyir Commercial Investment Company; local Mohammed al-Sheikh
  • Local Bakri International Energy Company; Malaysian Airports Holding Berhad; Malaysia’s Lembaga Tabung Hajii; local Mohammed & Abdullah al-Subeaei Investment Company
  • Local Saudi Binladin Group; France’s Bouygues Batiment International; France’s Aeroports de Paris Management; Turkey’s Limak Investment; Turkey’s MAPA Construction
  • Turkey’s TAV Airports Holding Company; local Saudi Oger; local Al-Rajhi Holding Group

PPP=Public-private partnership. Source: MEED

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